3 Tips to Prepare for Personal Tax Returns

There was time that if you had to file personal tax returns on your own, you could either consult a tax preparer or gather a whole bunch of receipts and wrack your brains. The Internet has changed all that and now you have a variety of options for preparing personal tax returns.

While the traditional option of filing hard copies is still open for taxpayers, considering the convenience of newer options you would not want to. Moreover, it is in your own interest to file tax returns electronically.

However, regardless of how you file returns, you still have to prepare for personal tax returns. Filing personal tax returns is easier if you know the information and the documents that you need to refer.

Total Income

Personal tax returns are all about paying tax on what you earned during the year. As such, you need to work it out. Your total income includes a variety of receipts. Income is earned or unearned financial gain over a specified period of time but all receipts are not classified as income. Interest, salary and/or wages, lottery winnings, alimony and a lot of other receipts fall under the category of income but the principal amount of a loan received back is not.

Go through your bank statements and receipts methodically so that you do not miss out anything. The penalties for not disclosing total income can be pretty severe.

Calculate Deductions

There are two basic types of deductions allowed to taxpayers, standard and itemized deductions. Standard deduction is a flat amount deductible from your taxable income. Itemized deductions relate to certain expenses including but not limited to mortgage interest, property taxes, and medical expenses, state and local income taxes, tools needed for work and some type of legal fees. Tax preparation fee that you pay to a professional is also deductible. Whether you claim standard deduction or itemized deductions depends upon which amount is larger.

Filing Tax Return

It is best to file you personal tax returns electronically to eliminate errors. Electronic filing may be done in two ways. You can purchase tax preparation software that will take you through the entire process and also check for errors.

Alternately, you can file your personal tax return online. Click on the relevant link on a tax preparation website and the rest is similar to filing with the aid of purchased software. Military veterans, taxpayers in low income bracket and certain other categories of individuals can avail of the Free File service offered by the IRS.

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